U.K. Factory Index Drops to 14-Month Low on Global Risks

By Scott Hamilton  

Photographer: Simon Dawson/Bloomberg

While the report signals continued growth in manufacturing, it also highlights that... Read More

A U.K. manufacturing index fell to the lowest in more than a year in August as geopolitical risks combined with weak euro-area demand to curb growth.
Markit Economics said its factory gauge dropped to 52.5, the lowest since June 2013, from 54.8 the previous month. The July reading was revised lower from 55.4, indicating expansion that month was weaker than initially estimated. Economists had forecast a reading of 55.1 in August, based on the median estimate in a Bloomberg News survey.
While the report signals continued growth in manufacturing, it also highlights that Britain’s economy may lose momentum as a stagnant euro area and the
conflict in Ukraine damp sentiment and demand. While two of the Bank of England’s nine policy makers wanted to raise interest rates last month, Governor Mark Carney is pushing to keep record-low borrowing costs for now.
It’s “increasingly evident that U.K. industry is not immune to the impacts of rising geopolitical and global market uncertainty,” said Rob Dobson, a senior economist at Markit in London. “It therefore looks as if manufacturing will provide a lesser contribution to the U.K. economic growth story in the third quarter than at the start of the year.”
The pound pared its advance against the dollar after the report was released. It was trading at $1.6628 as of 9:33 a.m. London time, up 0.2 percent from Friday.

New Orders

An index of new orders dropped to 52.9 in August, the lowest since April 2013, from 56.8 the previous month, Markit said. Factory output growth cooled for a fourth month and hiring slowed. Input-price inflation accelerated to a seven-month high, though remained below the series’ long-run average, according to the report.
The BOE will keep its benchmark interest rate at 0.5 percent after its meeting concludes on Sept. 4, according to all 49 economists in a Bloomberg News survey. In addition to focusing on weak wage growth as a sign of limited inflationary pressures, Carney has highlighted risks to the U.K. recovery from overseas developments.
“Geopolitical risks have intensified, and structural adjustment continues in the euro area, where growth is expected to be modest,” he said on Aug. 13 as he published new economic forecasts from the central bank.